The Story of Frans Seda, the Finance Minister Who Faced 650 Per Cent Inflation and a National Financial Crisis

Imagine managing national finances when prices skyrocket with inflation reaching 650 per cent. Foreign exchange reserves are dwindling, exports are stalled, and foreign debt is accumulating.

This was the situation faced by Frans Seda when he was entrusted with the role of Finance Minister in 1966. Although Frans Seda held the position for only about two years, that period became a significant chapter in Indonesia’s economic history.

Amidst these difficult conditions, he implemented several policies to restructure national finances and restore fiscal credibility.

Six decades later, these experiences have been revisited by Finance Minister Suahasil Nazara. He noted that there are important lessons to be learned from how Frans Seda handled the crisis, particularly regarding the courage to make difficult decisions while maintaining trust in fiscal policy.

Frans Seda in the Midst of an Economic Crisis

Frans Seda was born in Lekebaya, Flores, East Nusa Tenggara, on 4 October 1926. He studied at Xaverius Muntilan College and HBS in Surabaya before pursuing economic studies at the Katolieke Economische Hogeschool in Tilburg, the Netherlands.

Before joining the Ministry of Finance, Frans Seda had extensive experience in government. During President Soekarno’s era, he served as the Minister of Plantations and held several other positions.

In 1966, Frans Seda was appointed Finance Minister. At that time, Indonesia’s economic condition was under immense pressure. Suahasil noted that inflation had reached 650 per cent, while foreign exchange reserves were exhausted, exports were hindered, and foreign debt was massive.

During Frans Seda’s two years of leadership, inflation gradually decreased to 85 per cent by 1968. “I understand that what he truly did was restore fiscal credibility amidst the turbulence,” Suahasil stated during a recent speech at a university in Jakarta.

State Expenditure Nearly Three Times Revenue

One of the steps taken by Frans Seda was the implementation of a balanced budget concept. Essentially, state expenditure had to be adjusted to the government’s ability to collect revenue.

This measure was part of a fiscal consolidation effort because the budgetary situation at the time was extremely dire. According to Suahasil, state expenditure was nearly or approximately three times the amount of revenue collected.